A Tax Package to Keep Us One Step Ahead of Google

28/01/2016 10:22
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Updated
27 January 2017

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Molly Scott Cato
Green MEP for the South West of England and member of the Economics and Monetary Affairs Committee in the European Parliament

The announcement by Google that it will magnanimously pay £130 million for the tax it has avoided since 2005 has rightly been greeted with outrage and derision. To put this in context, in 2014 Google's revenue in the UK was £6.5bn. What Google are up to is a skilful attempt to remain in control of their tax liabilities in the face of intense focus by politicians to finally introduce a fairer global tax regime.

Before reaching its agreement with HMRC Google had carefully reorganised its corporate structure within the umbrella group it has called Alphabet, perhaps because they were kindly spelling out for us their new and more sophisticated approach to tax avoidance. For corporations like Google, tax avoidance represents such a huge financial investment that it is worth their while undergoing this sort of investment to stay one step ahead of government tax authorities. And now they can reach an agreement safe in the knowledge that most of their profits can still avoid tax.

However, in my role on the European Parliament's special tax committee, I can tell you that we are hot on their heels. Shortly before Christmas we passed a report which included some powerful measures to ensure a fairer tax regime. For example, we proposed a strong and extended definition of a tax haven with sanctions for countries defined as tax havens and companies using them to avoid taxes. This would end the right to receive any EU funding including payments from companies that have a base in a tax haven. Perhaps most importantly of all, we also supported public country by country reporting for all companies that have activities in the EU so that we know where companies do business and whether it matches where they pay taxes.

Over the last two years, the UK participated to an international tax reform process called BEPS (Base Erosion and Profit Shifting). The outcome announced in November 2015 is far from perfect but one of the key measures was to ensure that multinationals like Google could be taxed in the UK because they have a permanent establishment and real economic activity here. The deal between Google and HMRC puts at risk the implementation of these new rules and comes at a time when the European Union launches a new Corporate Tax Package.

This package, launched today by the Commission, is a welcome step. While from a Green perspective it does not go as far as we would like, it none-the-less contains a number of ambitious measures to fight tax avoidance. Member states now face a test. If they are serious about fighting corporate tax avoidance they should demonstrate this by adopting this new directive within a year. Disappointingly, but perhaps not surprisingly, the UK Tory government have been one of the most reluctant and obstructive members in the negotiations.

Ireland is another member state central to the tax avoidance strategies of tech giants Google and Apple. With its ultra-low corporate tax rate of 12.5% and its encouragement of profit-shifting schemes such as the notorious Double Irish, the Irish government has facilitated the starving of public coffers across the EU. Just before Christmas we had a glimpse of the scale of the tax avoidance, when the government received 50% more in corporate tax revenue than it was projecting. This unexpected windfall appears to be the result of corporations voluntarily changing their activities in the expectation that the Double Irish rule will be abolished. It gives a clear indication of the vast scale of tax avoidance.

So why was the Google tax deal struck in the UK when the UK government has stated publicly its support for tax competition? As Richard Murphy argues, this negotiation effectively condones Google's dubious Irish tax base and, when combined with Diverted Profits Tax, which Murphy labels as 'a deliberate BEPS spoiler by George Osborne', HMRC and the British government are effectively colluding in rather than challenging tax competition.

Google made its announcement of back-payment of taxes with great fanfare. Corporations invest heavily in their PR departments so they can control the debate in this way. By contrast, our work in the European Parliament is rarely reported. As European Greens, we are calling for 10 key steps towards tax justice.

Tax rules should be written by democratically elected politicians and in a transparent way, not stitched up behind closed doors by accountants, corporate bosses, and co-opted tax authorities. Which is why we in the special tax committee are making a formal request for George Osborne to come and explain why he is ignoring the democratic will of UK and EU citizens and offering special secret deals to corporations.